Chapter 2: Uniform Securities Act - Registrations

Which of the following examples listed below is not an exempt transaction? [A] The sale of U.S. government securities by a registered government securities dealer [B] A preorganization subscription transaction [C] A sale of stock through a rights offering to existing shareholders of the issuing corporation if no commission is paid [D] A sale of securities by the executor of an estate

[A] The sale of U.S. government securities by a registered government securities dealer EXPLANATION The sale of US government securities by a registered government securities dealer is not included in the USA's list of exempt "transactions", it is an "exempt security".

Under the Uniform Securities Act, a firm with its only office in State A that offers and sells securities exclusively to a registered investment company in State B: [A] Must register as a broker-dealer in State B. [B] Is exempt from registration as a broker-dealer in State B. [C] Is exempt from registration as a broker-dealer in State B because it only has one client in State B. [D] Is exempt from registration as a broker-dealer in State B because it does not have an office in State B.

[B] Is exempt from registration as a broker-dealer in State B. EXPLANATION Under the USA, it is unlawful for a firm to transact business in a state as a broker-dealer unless it is registered in the state or exempt from registration. The exemption applies to broker-dealers who sell exclusively to sophisticated institutional investors including registered investment companies.

An IA must be registered in a state under the USA even if it has no place of business in the state if: [A] its only clients in the state are Investment Advisers. [B] its only clients in the state are considered accredited investors. [C] its only clients in the state are insurers. [D] during a 12 month period, it directs business communications to a maximum of 5 clients in the state.

[B] its only clients in the state are considered accredited investors. EXPLANATION Selling to an Accredited investor would require IA registration. The other choices are all expressly exempt from registration.

Under the Uniform Securities Act, an investment advisor is required to advise a client about: I.Change of address. II.Addition of new partners to the advisory partnership. III.Change of advisor's phone number. IV.Addition of new client accounts. [A] I and III [B] II and IV [C] I, II, III [D] I, II, III, IV

[C] I, II, III EXPLANATION Investment Advisors must disclose to clients any change in the address of the Advisor, any addition of new partners of the advisory partnership, and any change in the Advisors phone number, but do not have to disclose the addition or deletion of clients of the Advisor.

According to the Uniform Securities Act, which of the following securities would be subject to the Act's registration provisions: [A] the security is issued by a local corporation which is to be sold only within the state [B] an issue by a federal agency [C] an issue by a Canadian province [D] an issue by a bank under state laws

[A] the security is issued by a local corporation which is to be sold only within the state EXPLANATION An issue which is to be sold only within the state would be subject to Uniform Securities Act registration provisions since all states have adopted the Uniform Securities Act.

According to the Uniform Securities Act which one of the following is true of an applicant for registration who within the past 10 years has been found to have violated securities laws of another state by the administrator? [A] Registration cannot be denied but the administrator may place limits on the applicant's activities. [B] The administrator may not take any action against an applicant for the violation of another state's securities laws. [C] The administrator may deny registration, limit the person's business activities, or bar the person from employment with a registered investment advisor or broker/dealer. [D] Registration cannot be denied but the administrator can require the applicant to maintain bonding as a prerequisite registration.

[C] The administrator may deny registration, limit the person's business activities, or bar the person from employment with a registered investment advisor or broker/dealer. EXPLANATION The administrator may deny registration, or limit or bar registration if the administrator finds that denial is in the best interest of the public.

Under the Uniform Securities Act, registration of an investment advisor may be revoked for all of the following reasons except: [A] The advisor's liabilities exceed its assets. [B] The advisor cannot meet obligations as they come due. [C] The advisor is declared insolvent. [D] A non-participatory shareholder in the advisor is declared insolvent.

[D] A non-participatory shareholder in the advisor is declared insolvent. EXPLANATION The administrator may by order deny, suspend, or revoke any registration or bar or censure any registrant's employment for several reasons. One such reason is insolvency, meaning liabilities exceed assets and the registrant cannot meet obligations as they come due. Please refer to the study pages for additional reasons.

An entrepreneur who has some background in the finance industry decides to open up an IA firm. The individual brings in several finance professionals as partners in the firm, and solicits several IARs as potential employees, all of which say they would bring a book of clients with them. Which of the following are accurate of this scenario? I.The IA firm will be required to submit the name, address, and proposed method of doing business for the new IA firm. II.The IA firm will be required to submit the names, addresses, business background, and any regulatory actions related to the partners of the IA firm. III.The IA firm will be required to submit the names, addresses, business background, and any regulatory actions related to all IARs who were solicited to work at the IA firm. IV.The IA firm will be required to submit the names, addresses, business background, and any regulatory actions related to clients who transferred to the IA firm with the hiring of a solicited IAR. [A] I and II only [B] I, II, and III only [C] II, III, and IV only [D] I, II, III, and IV

[A] I and II only EXPLANATION For INITIAL registration, an IA firm would have to submit the firm's name, address, and proposed method of doing business. As well, the names, addresses, business background, and regulatory actions taken against any key persons, which would include partners, would have to be submitted. Though there are obligations with regards to due diligence and registration related to IARs and customers, these standards are not as high as those for key persons to the business. The firm would not be required to submit all of the items listed for potential employees or new customers.

Which of the following are TRUE when it comes to the authority of an Administrator? I.The Administrator of a given State is mainly charged with protecting the residents of that State from securities law violations. II.The Administrator of a given State is mainly charged with protecting the broker/dealer and investment advisory firms of that State. III.The Administrator of a given State is primarily focused on investigating and taking action against firms that commit securities law violations within their State. IV.The Administrator of a given State is primarily focused on investigating and taking action against firms that commit securities law violations in other States. [A] I and III only [B] I and IV only [C] II and III only [D] II and IV only

[A] I and III only EXPLANATION The Administrator of a State is primarily charged with protecting the residents of that State from securities law violations. Administrators typically focus investigations and legal proceedings against firms that commit securities law violations within their State. An Administrator has the authority to investigate any firm that is registered within their State or that is suspected of committing securities violations within their State. Administrators do have the authority to investigate a firm that is registered in their State and may be performing unlawful actions outside of the State, but would typically refer such investigations to the Administrator of the State where violations are taking place.

According to Section 202 of the Uniform Securities Act, registration of an investment adviser firm automatically constitutes registration for which of the following persons? I.Any investment adviser representative of the firm. II.Any investment adviser representative of the firm who is also a partner of the firm. III.Any investment adviser representative of the firm who is also an officer or director of the firm. IV.Any person who is employed by the firm. [A] II and III only [B] I, II, and III only [C] I, III, and IV only [D] I, II, III, and IV

[A] II and III only EXPLANATION Section 202 of the Uniform Securities Act states, "Registration of an investment adviser (firm) automatically constitutes registration of any investment adviser representative who is a partner, officer, or director, or a person occupying a similar status or performing similar functions. So in this question, the IARs who are partners, officers, or directors of the firm are automatically registered. Other IARs as well as other employees of the IA firm are NOT automatically registered. Remember that with the filing of registration paperwork by the firm, information regarding partners, officers, and directors is also submitted. The automatic registration function was put in place to reduce redundant applications.

Daniel is registered as an investment advisor in State A, but has not yet registered in other states. He limits the number of clients that he has in other States to no more than 5 in each state. Which of following clients would NOT be considered in the count of Daniel's clients under the USA? I.Bob and Susan Smith, a wealthy couple who are deemed to be accredited II.ABC Trust Company III.Bay State Investment Advisory Firm IV.James Johnson, a qualified client [A] I & II only [B] II & III only [C] I, II, & III only [D] I, II, III, IV

[B] II & III only EXPLANATION Be careful in this question. We are asking which clients DO NOT count toward the 5 client exemption. An exemption from registration under the USA is available to an investment advisor who has no place of business in a state and limits its clientele to other investment advisers, broker-dealers, and financial institutions, such as banks, insurance companies, trust companies, and investment companies or limits the number of clients to no more than 5 in each state.

Under the Uniform Securities Act, which of the following securities is exempt from state registration requirements? [A] OTC common stock [B] Stock traded on the NYSE [C] Limited partnerships [D] Mortgage bonds

[B] Stock traded on the NYSE EXPLANATION If a security is listed on a National Exchange, it will be exempt from registration within a state because the listing requirements for the Exchange are more stringent than what any of the states require. Therefore, if the security is qualified to be listed on the exchange, it MORE than meets the state's requirement.

An Administrator decides to revoke an exemption which was previously offered in the Administrator's state. Because abuses of this exemption have been taking place for several years, the Administrator decides to pre-date the revocation, making this revocation retroactive. This will allow the Administrator to prosecute those who abused the exemption. Which of the following is TRUE of this scenario? [A] These actions are within the scope of the Administrator's authority. [B] The Administrator is permitted to issue revocations with relation to exemptions, but is not permitted to do so retroactively. [C] The Administrator is permitted to issue revocations with relation to exemptions, but must provide prior notice to all affected parties when such revocations are performed retroactively. [D] The Administrator is permitted to issue revocations with relation to exemptions but may only do so once annually.

[B] The Administrator is permitted to issue revocations with relation to exemptions, but is not permitted to do so retroactively. EXPLANATION Administrators have the authority to deny or revoke exemptions without prior notice to parties affected. No hearing would be necessary either. However, the Administrator is NOT permitted to issue orders that are retroactive.

Coordination is used to register securities with a state and an agent is talking to a prospective buyer about these securities. The Uniform Securities Act permits which of the following statements regarding this situation? [A] The agent may state that by accepting the registration by coordination, the Administrator stands behind the issue of securities. [B] The agent may state that no assessment or judgment has been made by the Administrator with regards to the viability of the company or security. [C] The agent may state that by accepting the registration by coordination, the Administrator believes that all aspects of the company and security are in order. [D] The agent may state that there were no false or inaccurate statements included in the registration, otherwise the Administrator would have denied registration.

[B] The agent may state that no assessment or judgment has been made by the Administrator with regards to the viability of the company or security. EXPLANATION Administrators, SROs, and government agencies such as the SEC will NEVER "pass on", "endorse", "stand by", or "guarantee" the viability of a company or security. It is also unacceptable for an agent to state that the Administrator has found that all statements and information contained in a registration statement is "true" or is "accurate" or for the agent to state that a registration statement would not have been approved if there were any inaccuracies.

Under the Uniform Securities Act, which of the following would describe an "Exempt transaction" or "Transactional exemption"? [A] The transaction is exempt from registration requirements but is subject to the filing of advertising. [B] The transaction is exempt from registration requirements and exempt from the filing of advertising. [C] The transaction is subject to registration requirements and exempt from the filing of advertising. [D] The transaction is subject to registration requirements and subject to the filing of advertising.

[B] The transaction is exempt from registration requirements and exempt from the filing of advertising. EXPLANATION Under the USA, an Exempt Transaction or Transactional Exemption means that the transaction is exempt from the registration requirements and exempt from the filing of advertising requirements.

Which of the following securities would NOT qualify for an exemption and must therefore be registered with the Administrator under the Uniform Securities Act? [A] Bonds issued by the country of Canada [B] A Federal Credit Union for Teachers [C] A security issued by a company to the members of the public of a given state [D] A security issued by an electrical company offering electricity to a particular county of a given state

[C] A security issued by a company to the members of the public of a given state EXPLANATION Each of the securities listed qualifies for an exemption EXCEPT for the security that is issued to members of the public of a given state. All other answers qualify for an exemption under the Uniform Securities Act.

State Administrators have certain authority regarding the establishment of requirements related to net capital and registration of broker-dealers. Which best describes this authority? [A] Administrators must establish minimum capital requirements that are greater to those of the SEC. [B] Administrators can act in the public interest, establishing appropriate minimum net capital requirements for broker-dealers. [C] Administrators can only enforce the minimum net capital requirements of the SEC. [D] Administrators have no authority to establish or enforce net capital requirements of broker-dealers.

[C] Administrators can only enforce the minimum net capital requirements of the SEC. EXPLANATION Remember that Federal law always preempts state law and that states can never require more than what is required at the Federal level (SEC).

If the status on an agent changes, who is responsible to notify the administrator? [A] Employer [B] Agent [C] Both [D] Neither

[C] Both EXPLANATION Both the Agent and the Agent's employer are required to notify the Administrator when there are changes regarding the agent or the Agent's employer.

Which of the following investment advisers may, by law, transact business in a state according to the Uniform Securities Act? I.A registered adviser II.An investment adviser, who is not registered in a State or with the SEC, whose advice relates solely to exempt securities III.An adviser registered in State X who has no place of business in State Y and directs business communications to 5 or fewer clients in State Y over the past 12 months. [A] I only [B] I and II only [C] I and III only [D] I, II, and III

[C] I and III only EXPLANATION Under the Uniform Securities Act, an investment advisor must register when giving advice on any security, exempt or not. In the Investment Advisors Act of 1940, an exemption exists for federal covered advisors who give advice on government securities only, but this question is specific to the Uniform Securities Act. The five client exemption applies here, so remember that an IA with 5 or fewer clients (also can be stated "less than 6") could transact business in a state without registering in that state.

Which of the following statements is true with regard to the registration of investment advisers (IAs) and investment adviser representatives (IARs) under the Uniform Securities Act? [A] IARs are not required to be registered in a state as long as the IA is registered in the state. [B] IARs are required to be registered only if the IA is registered in a state. [C] IARs are required to register even when the IA itself does not have to register because of an exemption. [D] IARs that are giving advice about exempt securities do not have to be registered, even when the IA itself is required to be registered.

[C] IARs are required to register even when the IA itself does not have to register because of an exemption EXPLANATION It is unlawful for any investment adviser required to be registered to employ an investment adviser representative unless the investment adviser representative is also registered. The IA may not be required to register in the State, for example, if they are a Federal Covered Adviser.

Gina is an agent at a firm located in Oklahoma. She is registered in Oklahoma, Arkansas, and Texas. Which of the following are acceptable statements by Gina to existing and prospective clients? I."The Administrator of each state where I have registered have reviewed and verified my credentials." II."I am registered in these three states, so if you move to one of those states or have friends in those states that you would like to refer, I can handle the accounts". III."I will personally guarantee that if you open and keep your account with me as your agent, that you will not lose money." IV."My registration is active in these three states and it is renewed annually at the end of the year, but being registered does not mean that I am qualified to handle every possible investment question." [A] I and II only [B] III and IV only [C] II and IV only [D] I and III only

[C] II and IV only EXPLANATION It is unlawful for any broker-dealer or agent of a broker-dealer to do solicit or transact business in a state unless both the broker-dealer and agent are registered in the State. Registration with the State does NOT mean that the State has approved or passed on that registration, it simply means that the proper paperwork has been filed with the State.

An Administrator has noticed that there has been regular abuse of an exemption which applies to a specific type of non-profit organization. The Administrator has decided to revoke the exempt status for this type of non-profit. Which of the following is TRUE regarding this scenario? [A] Such a revocation is only permitted once all non-profits claiming the exemption have been notified in advance in writing. [B] Such a revocation is not permitted, because the Administrator has not proven that the exemption is being claimed inappropriately. [C] Such a revocation is within the scope of an Administrator's authority. [D] Such a revocation is permitted, but a hearing must take place where those claiming the exemption are permitted to present their case and a uninterested panel provides a ruling as to whether or not the revocation of the exemption takes place.

[C] Such a revocation is within the scope of an Administrator's authority. EXPLANATION Administrators are permitted to issue orders revoking certain exemptions without providing notice to the entities that will be affected and without providing a hearing related to the revocation of the exemption. The Administrator has such authority and is not required to prove that the exemption has been abused by those claiming it.

A non-issuer transaction, according to the Uniform Securities Act, is best described by which of the following? [A] Nobody other than the issuer has purchased the security. [B] Anyone other than the issuer has purchased the security. [C] A private offering is made by a corporation and the offering is exempt. [D] Any sale in which the issuer does not directly or indirectly benefit from the transaction.

[D] Any sale in which the issuer does not directly or indirectly benefit from the transaction. EXPLANATION A non-issuer transaction would include a shareholder selling shares that they own to another investor. Therefore there would not be any benefit to the issuer.

After initial registration of a Broker-Dealer Firm, all of the following statements would apply to the firm except: [A] The Administrator may conduct investigations within or outside of the state at any time [B] The Firm is subject to record keeping requirements [C] The Administrator may publish information concerning any violation [D] The Firm is only required to file material changes with the State semi-annually

[D] The Firm is only required to file material changes with the State semi-annually EXPLANATION Broker-dealers are subject to record keeping requirements. The Administrator may conduct investigations within or outside of the state, and may publish information concerning any violation. If there are material changes in the manner in which the Broker-Dealer does business PROMPT notification, not semi-annual notification is required.

According to the Uniform Securities Act, which of the following is true regarding registration of investment adviser representatives? [A] Representatives are automatically registered when they become employed by a registered investment adviser. [B] A representative's registration remains in effect even during a period when the representative is not employed by a registered investment adviser. [C] Registration in the state where a representative has his or her business office enables the representative to do business in any state. [D] To register, a representative must submit a completed application for registration, a filing fee, and a signed consent to service of process

[D] To register, a representative must submit a completed application for registration, a filing fee, and a signed consent to service of process EXPLANATION Of the choices offered the only choice which is correct is "D". In order to register, an investment advisor representative would have to submit an application, a filing fee, and a signed consent to service of process. Registration is NOT automatic.